In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

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Pricing the Fast Lane

This article originally appeared in the Washington Post on July 12, 2002.

A report released recently by the Texas Transportation Institute underscored what most of us already know: Traffic congestion is getting worse. According to the study, American motorists spend four times as much time stuck in traffic today as they did in 1984, an average of 15 minutes a day or a total waste of two days a year. Of course, for those of us in major metropolitan areas, 15 minutes of congestion is a pipe dream. Commutes of an hour or more are increasingly common, with all the lost productivity, unnecessary automobile pollution, sacrificed family time and aggravation that go along with them. But it doesn’t have to be that way.

Roads are congested because they are free, and because no market mechanism exists to allocate scarce road capacity. So we pay in the form of the time we’re forced to sacrifice in traffic. But we could pay for roads in the form of user charges. Advances in technology make this a viable strategy, allowing us to collect tolls without the burden of toll plazas and gates that can bottleneck traffic. The tolls would vary according to the time of day to ensure that the lanes remain uncongested at all times. Such a system is in use on State Route 91 in Orange County, Calif. Tolls vary from 75 cents during off-peak hours to $4 at peak times to travel 10 uncongested miles.

Unfortunately only economists and a handful of environmentalists, who realize that increased highway user fees are probably the only way to increase mass transit use and affect residential housing decisions, show much enthusiasm for this. Instead three ineffective policies are commonly touted: building more roads, increasing transit availability and mandating greater density (smart growth). They all fail because they do not directly affect the relevant variable: the cost of automobile travel at peak hours.

Given stiff community resistance to new highway construction in many parts of the nation, there may be no way to add roadway capacity where it’s needed most. But even if we could overcome political resistance, increasing road supply is not a solution in the absence of congestion charges. To be sure, building more roads or increasing the lane capacity of existing roads initially results in reduced congestion. But because the new roads are free, people relocate and alter their travel patterns to take advantage of the uncongested free good. And before you know it, the road is congested again.

Mass transit subsidies aren’t any better. Even though federal, state and local governments spent $70 billion on new mass transit projects in the 1990s, the number of people using transit to go to work actually decreased slightly from 1990 to 2000, according to recently released census data. The fundamental problem is that commuters are now as likely to travel from suburb to suburb as they are from suburb to city, which complicates the economics of mass transit considerably. Moreover, economists have discovered that, as we become wealthier, we’re less likely to use mass transit. So continuing improvements in economic growth will put mass transit in even more of an economic hole.

Smart growth — a politically convenient euphemism for increasing the density of residential neighborhoods and putting them nearer urban areas — is no panacea either. Even putting aside the fact that most Americans clearly want more living space and countryside — not less — the densest residential neighborhoods, such as Manhattan, also have lots of traffic. In fact, increasing residential density as a method of reducing auto travel is rather ineffective. In a recent book published by the Brookings Institution, transportation economists estimate that increasing U.S. urban residential density by 50 percent from its 1990 average of 3,600 to 5,400 people per square mile would reduce auto travel by only 3 percent. And increasing the density of an average suburb to that of, say, Chicago, would reduce the rate of auto use by only 11 percent to 25 percent.

Environmentalists would argue that, were it not for subsidies to highway users, the story would be different. In 2000, for instance, governments collected about $102 billion in gas taxes and user fees but spent about $124 billion in capital, maintenance and law enforcement — a subsidy of $22 billion. The roads were used for about 2.6 trillion passenger miles for a subsidy of .5 cents per passenger mile. Total transit subsidies were about the same, $23.5 billion. But transit was used for only 50 billion passenger miles, resulting in a whopping 49.2 cents of subsidy per passenger mile traveled.

Even if you were interested in making motorists pay for the pollution caused by their gasoline use, Brookings scholar Cliff Winston reports that you’d be adding only 3 cents per mile to the cost of driving a car. Subsidizing mass transit simply to take account of the environmental pollution caused by auto use would result in much smaller subsidies and higher fares. So even if you consider the “environmental subsidy” given to motorists, mass transit riders are still paying far less of their fair share than are motorists.

One definition of insanity is doing the same thing over and over and each time expecting a different result. Promoting additional road construction and mass transit subsidies meets this definition of policy insanity. It’s time we consider the road less traveled and give Econ 101 a try.